Netflix versus… Peloton? Why ad-funded tiers disrupt the whole subscription industry

From gym memberships to recipe boxes, they may not realise it, but subscription services are competing with each other for survival as consumer spending gets tighter. But a strong customer engagement might just help them navigate a brutal winter of cuts ahead ...

With Netflix' new ad funded tier now live, Magith Nookhukan, Head Engagement Evangelist at Braze looks at why the video streaming firm will have to change the way it engages with clients to maintain customer loyalty, and other subscription brands will have to up their game to stop customers moving to the cheaper ad-funded service. 

In efforts to revive its stalling customer growth, Netflix has introduced an ad-funded tier, causing a disruption in the streaming industry with a cheaper subscription plan on offer to its customers.  It has been estimated that the new tier will generate $8.5 billion in revenue by 2027.  

This is already causing ripples in the streaming industry, with Disney+ and HBO Max also planning to introduce a similar tier system by 2023.   

While Netflix is a streaming service, this move could also have implications for any business that operates on a subscription model.  

 

Whether it is a gym, streaming, or food delivery subscription, all subscription services are linked in the eyes of consumers as part of their monthly expenditures. They may not realise it, but these services are competing with each other for survival, especially as consumer spending gets tighter due to the rising cost of living.  

In a subscription model, you need to discourage customers from unsubscribing in order for the company to scale and grow. The best way to do this is to focus on building long-term relationships with customers through strategic customer engagement. If a consumer is loyal to a brand, they will continue to choose and spend with that brand month after month. If a consumer isn’t loyal and doesn’t see the value, they may choose to unsubscribe or let a subscription lapse. 

In times like this, brands need to keep their customers at the heart of everything when engaging with subscribers – focusing on adding value to prevent churn. 

When brands create value for their customers, they can see a noticeable change in their bottom line, which is far more sustainable than cutting prices. A 5% increase in customer retention has been shown to increase company revenue by 25-95%.   

Turning users into subscribers can be a long and expensive process for a brand, from setting low-effort actions in place like clicking ‘like’ on a song or playlist, introducing new and unique features, creating a community connection, and finally, upselling a better package at the right time. A good customer engagement strategy helps brands build the relationship between customers and brands from the start and past this point.

How can brands boost customer loyalty? 

Make it easy and add value 

Think about easy ways for users to build repeatable habits – such as liking a song or playlist, clicking on a promotional banner, etc. These quick actions take little effort from the user but are an easy way to learn more about them and build a stronger relationship with them. Every message and engagement with your customers should reflect how you are helping them as a brand. During times of socio-economic hardship, consumers tend to focus on where they can save money. This should be top of mind for marketing teams while engaging with their customers. Getting users to complete low-effort actions increases their probability of subscribing to your service to 33.1% on average according to the aggregated analysis of Braze platform data. 

Keep it personal  

Personalising the words and information you send to customers is a crucial approach to boost engagement. For instance, if some of your users haven’t interacted with your business in quite some time, you may build a strategy to address these customers exclusively, gather a group of lapsed customers based on engagement data, and reach back to them with tailored and personalised messaging.  

These messages can be far more successful if you customise them using data about each customer's prior behaviours and purchase habits to emphasise their historical consumption. It provides those that may be moving away from your brand with tangible reasons to return, helping to strengthen their relationship with your brand.  

Gamify the experience 

People are intrinsically drawn to games that allow them to see numbers increase, even when they possess no monetary benefit, and it can be a powerful motivator. Brands should target highly engaged customers with focused messages that highlight their remarkable engagement or activity streaks. This turns their engagement with your brand into a type of game or competition, incentivising them to return and engage regularly. 

 

You may even celebrate key milestones with your customers, congratulating active users that attain certain usage goals. Acknowledging such events with personalised communication immediately as they occur strengthens the relationship between consumers and your brand. 

Up the interactivity 

If a consumer is faced with a choice of unsubscribing from a brand that they regularly want to interact with and one which they don’t, the choice becomes simple. Essentially the goal is to create messaging that offers customers value.  

One example of this was done by Spotify which promoted The Weeknd’s new album. As the artist couldn’t tour due to the Covid-19 pandemic, Spotify created a personalised one-on-one with the artist enabling fans to connect and engage with him. This provided superfans with a real sense of connection not only to the artist, but to Spotify as their streaming platform.  

Innovative campaigns like these are more important than ever as subscribers’ purse strings get tighter. Now is the time for subscription-based brands to look at activating, if not already, their customer engagement strategy to keep their customers engaged while offering additional value. If brands can build a base of loyal subscribers by optimising their relationship with customers, they will be able to weather any storm – even if competitors introduce new services like Netflix has done.  

By Magith Nookhukan

Head Engagement Evangelist

Braze  

 


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